Electricity storage costs on the cusp of a precipitous fall

Elon Musk’s announcement of Tesla Energy and the Tesla Powercell (combined solar cell and battery) is the big news today, but it’s best understood in the context of longer term changes in the electricity industry. Two days ago I wrote about exponential increases in the use of solar energy, but solar energy only gets you so far without efficient storage to keep the lights on when the sun isn’t shining.

This ‘storage problem’ has long looked like the thing that would hold solar energy back. The cost of solar cells has been falling exponentially for some time and that has driven increased production, but if solar is ever to be more than a small percentage of the grid then storage needs to be solved, and battery technology has been advancing more slowly than solar cells (improvements have been linear rather than exponential).

The Tesla Powercell is a big step in the right direction. Ramez Naam compared the cost of electricity from the Powercell with the grid and found it to be roughly twice the price. Given that battery costs are halving every 2-3 years it won’t be long before it reaches grid parity. Meanwhile, early adopters, customers who suffer badly with outages, and countries where there’s a lot of sunshine and electricity costs are high will drive demand in the short term.

Exciting stuff. We could be on the cusp of a virtuous cycle that heralds a new era of cheap energy. This is from another Ramez Naam post from last month:

Energy storage is hitting an inflection point sooner than I expected, going from being a novelty, to being suddenly economically extremely sensible. That, in turn, is kicking off a virtuous cycle of new markets opening, new scale, further declining costs, and additional markets opening.

To elaborate: Three things are happening which feed off of each other.

Cheaper Storage is on the Verge of Massively Expanding the Market. Battery storage and next-generation compressed air are right on the edge of the prices where it becomes profitable to arbitrage shifting electricity prices – filling up batteries with cheap power (from night time sources, abundant wind or solar, or other), and using that stored energy rather than peak priced electricity from natural gas peakers.This arbitrage can happen at either the grid edge (the home or business) or as part of the grid itself. Either way, it taps into a market of potentially 100s of thousands of MWh in the US alone.

A Larger Market Drives Down the Cost of Energy Storage. Batteries and other storage technologies have learning curves. Increased production leads to lower prices. Expanding the scale of the storage industry pushes forward on these curves, dropping the price. Which in turn taps into yet larger markets.